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Thursday, 12 Jun 2008
U.S Retail Sales on Tap
During yesterday's trading the greenback suffered a bearish trend versus its major currency rivals. The USD lost 80 pips against the EUR and closed at 1.5552 before reopening of the Japanese market. The dollar also lost against the GBP, seeing a 90 pip drop as it closed trading at 1.9632. The movement can largely be tied to fundamental news from yesterday. Crude Oil Inventories came in lower than expected at -4.6M, as reports had initially expected a 4M swing in the opposite direction. The Beige Book which provides a compilation of evidence supplied by the twelve Federal Reserve districts regarding the economy showed that the U.S. economy is still weak and FOMC Members Kohn and Kroszner speeches were less hawkish than expected. These factors combined with another day of rising oil prices ($138/barrel) contributed to the drop in the USD.
Later on the Japanese session opened with a significant push for the USD as the equity market in Japan saw a sharp drop of nearly 200 pips. The greenback saw recovery against its major counterparts as it erased all its losses from Wednesday. The momentum could be very important as we look toward today's trading session.
On tap today, we are expecting a batch of mix US data. Core Retail Sales are expected to gain 0.2% to 0.7% and Retail Sales is forecasted to rise to 0.5%. The Import Price Index is currently forecasted at 2.5%, a 0.7% raise from last month and Unemployment Claims is expected to reset back to 370K. The aforementioned events should provide steady liquidity to the market, before the 15:30 GMT speech by Federal Reserve Chairman Ben Bernanke. Bernanke, who will give a speech at the New Federal Reserve Bank of Kansas City, has been a strong defender of the stronger dollar in the last couple of weeks. His speeches will likely contribute once again to volatility in the market. As most indicators are expected to have a rising trend this should give the greenback a bullish push overall versus its rivals during today's trading session.
The EUR finished yesterday's trading session with mixed results versus the major currencies. The 15-Nation currency saw gains versus the greenback for most of the day before seeing the Asian equity markets push the dollar back up. Versus the JPY, CHF and GBP the Euro-Zone currency range traded throughout most of the day, as most of the market movement from yesterday were dollar centered. In addition yesterday was a slow news day in Europe as only the French CPI was published. The French CPI came in at 0.5% which is 0.1% higher than forecasted and 0.2% higher than previously published.
Today we can expect several indicators to be published in the Euro-zone. Early this morning the French Final Employment Change rose by 0.2% to 0.4% for the month of May. The ECB Bulletin is expected early this morning and will likely provide little to move the market. If the bulletin provides a hawkish stance it could result in a short term bullish trend in the EUR. Industrial Production is forecasted to rise by 0.2% from last month and in Ireland a vote on the Lisbon Treaty referendum will take place. Investors should pay close attention to the news and place their transaction accordingly with the developments throughout the day.
The Yen strengthened versus most of the major currencies yesterday as Asian equities markets turned negative during the European session on banking concerns. Over the past few days, there has been no cohesiveness amongst the Yen crosses as pairs like EUR/JPY accelerated while USD/JPY retreated. Overall the USD/JPY traded with a low of 106.58 and a high of 107.74 before closing the day around 106.90 in the New York session. Additionally, the Yen gained another 48 pips versus the GBP and closed at 209.75.
Looking forward this week, we have the Bank of Japan rate meeting on Friday. Inflation continues to dominate the mind of the central bank and expect it to continue to be a driving force in the forex market as well. Last Tuesday's 1st Quarter Japanese GDP came in stronger than expected, but in fact caused little reaction as the final figure indicated quite a sluggish growth. The Trades Surplus and the Corporate Goods price indices were also stronger than expected.
Technically, higher inflation could prompt higher Interest Rates but the latest Japanese fundamental data will probably not be radical enough to convince the Bank of Japan to raise Interest Rates in the nearest BoJ session.
Today we don't expect significant economic data to come out from the Japanese economy. Forex investors should keep an eye on the economic events from around the world, as Volatility and direction for the Japanese currency may be derived from them.
The pair has been trading within a wide range with high volatility for a while now. It appears that the bearish price movement might be back. The Slow Stochastic of the 4 hour chart indicates an upcoming test of the 1.5400 level. If that level is breached, swinging in the trend would be the best strategy.
The float within the widening bearish channel on the daily chart continues, as no significant breach has been made. The negative slope on the daily Slow Stochastic indicates the continuation of the bearish movement within the channel. Going short with tight stops appears to be the preferable strategy.
The daily chart is showing that the bullish channel still remains intact, as the pair now floats in the middle of it. The daily Slow Stochastic and the RSI are pointing to very bullish grounds, and no correction appears to be in sight. Next target price should be around 108.10 and going long looks like a preferable choice today.
The daily chart is giving mixed signals with its RSI floating in neutral territory.
However, the Slow Stochastic of the 4 hour chart is showing quite a strong bullish momentum, and the RSI confirms that the direction is indeed up. The hourlies support the bullish notion as well, and it appears that the pair still has more room to run. Going long with tight stops is a preferred strategy today.
The Wild Card
The recent corrective bearish move is over and it seems as if the Oil has been moving within an accurate bullish channel with quite a strong momentum for a while now. The bullish cross on the hourlies is strengthening the notion that forex traders might enjoy a nice entry price for the upcoming bullish move. However, sharp drops can be seen locally, therefore traders should look for a dip in an attempt to rejoin the strong bullish trend.
|01:30||AUD||ANZ Job Advertisements||m/m||0.9%|
|03:45||USD||Final Manufacturing PMI||56.2||56.1||-|
|04:00||USD||ISM Manufacturing PMI||56.6||56.5||-|
|04:00||USD||ISM Manufacturing Prices||59.5||58.3||-|
|04:00||USD||Total Vehicle Sales||16.4M||16.6M||-|
|09:15||USD||Spanish Manufacturing PMI||-52.6||-52.4||-|
|09:45||EUR||Italian Manufacturing PMI||50.7||50.6||-|
|10:00||EUR||Final Manufacturing PMI||50.7||50.7||-|